Maytham Al-Khairulla

The shift from Globalization to Regionalization in the global supply chain

I have been reading over the past weeks various authors trying to predict the global supply chain trends in 2023, the usual focus is on topics such as political instability/ wars and its impact on the commodities prices and availability; supply chain resilience, freight costs/ ports congestions, the impact of a potential global recession on demand and other topics such as Supply chain talents development and digitalization. While it’s hard to accurately predict how 2023 will shape the global supply chain industry, one shift that seems to be clear is the diversification of goods manufacturing across various regions of the globe.

Due to strategic reasons, we have seen a growing governmental focus on building the manufacturing capacity of high-tech strategic goods across the US and Europe, to secure the supply of strategic goods such as chipsets away from their current production concentration in East Asia. This obviously opens multiple opportunities for countries close to major consumer hubs in North America and Europe. Shifting the location of labor-intensive manufacturing to North Africa/ East Europe to supply markets in Western Europe or in Central America to supply the US and Canada is a clear trend that will become more visible in 2023. Countries in Southeast Asia will also benefit from this shift not only in terms of Foreign Direct Investments (FDI) but also in regard to knowledge transfer and opening opportunities to strengthen the working class in these regions.

This shift will require the benefiting countries to invest more in their infrastructure such as roads, ports, electricity generation, and other requirements to allow such manufacturing sites to be established and nurtured. The educational system will also need to be enhanced to supply well-qualified staff in the growing local industries of each region. These changes will also make the supply of goods more resilient and closer to the main consumer markets, however in the near term might result in additional costs incurred due to the more efficient cost optimization capabilities of the current global production model where the manufacturing hubs are producing goods for global markets in significantly high volumes. In the mid-term, the current hubs in East Asia that will lose some of the existing demand due to the regionalization of the global supply chain will need to find ways to remain competitive and maintain a good market share (albeit lower than their current high concentration of global market share).

Environmental, social, and Governance (ESG) global objectives can potentially benefit from this shift as it results in better controls over sustainable suppliers, workers’ rights, and good governance practices implemented by countries keen to attract additional FDI into their respective markets. Governments and major investors have a shared responsibility to ensure that these goals are discussed and linked to their investment decisions in these markets. As per the World Investment Report 2022 issued by UNCTAD, global FDI investment flows were $1.58 trillion, the expectation is that the new investment will benefit from tax exemptions and other government incentives to encourage them to set up new manufacturing sites, which can offset the impact of higher interest rates on future investments.

As for the other trends and predictions for 2023, decisions and events beyond the market supply and demand forces such as the war in Ukraine and the central bank’s interest rates policies to control inflation will determine the price of commodities, the demand for goods and the potential recession looming in certain global markets. The only certain prediction is that global supply chain diversification is only beginning….

You May Also Like

More From Author

+ There are no comments

Add yours